More Grist to the Arnold v Britton Mill

A dispute arose recently out of the design and construction of the Rolls Building, the sparkly new-ish home to the Technology and Construction Court. So, perhaps uniquely, the Court heard a dispute about the Court housing the trial.

The facts are very leaden, but what caught my eye was the use by the Judge, Miss Nerys Jefford QC, of Arnold v Britton [2015] UKSC 36. As you will remember, this Supreme Court case concerned the meaning of a service charge clause in a lease which stated that the tenants must:

“pay […] a proportionate part of the expenses and outgoings incurred by the lessors in the repair, maintenance, renewal and the provision of services […] in the yearly sum of £90”…

…subject to an annual 10% compound increase with the result that for a lease granted in 1980, the current annual service charge would be £2,500; and by 2072 would reach £550,000!

In Arnold v Britton, Lord Neuberger reiterated that when interpreting a contract, the Court is concerned to identify the intention of the parties by reference to:

“what a reasonable person having all the background knowledge which would have been available to the parties would have understood the language in the contract to mean”…

…and the Court does so by focusing on the meaning of the relevant words, which in Arnold v Britton were the relevant terms of the lease.

That meaning, Lord Neuberger said, was to be assessed in the light of:

The natural and ordinary meaning of the clause

Any other relevant provisions of the lease

The overall purpose of the clause and the lease

The facts and circumstances known or assumed by the parties at the time that the documents were executed

Commercial common sense

Disregarding subjective evidence of any party’s intentions.

The result in Arnold v Britton was that the tenants were stuck making astronomical service charge payments that would virtually frustrate the value of their leases.

In Carillion Construction the Judge said that, following the principles laid down by the Supreme Court in Arnold v Britton, she should be slow to depart from that meaning of a clause even if she considered that the result did not accord with commercial common sense.

The Judge said: “I do not see that the words of the contract can be read to have this effect or that the putative reasonable person would have thought it had this meaning at the time the contract was entered into. If it had been intended to have this unusual effect, I would have expected to see this much more clearly provided for”.

So, again, a useful reminder that the Court should first look for the natural meaning of the words used in the contract and not be too ready to depart from such meaning on the basis of the meaning the Court thinks accords with commercial common sense.

The more unclear the words or the worse the drafting, however, the more ready the Court should be to do so. When considering the parties’ intended commercial meaning of the words used, the Court should be careful to have regard only to what the parties knew or could reasonably have known at the time of entering into the contract.